10/20/2015

Has the sun set on disclosure only settlements?

In a recent bench ruling, the Delaware Court of Chancery refused to approve a proposed class action settlement in which the benefit to the class was “disclosures only”, and the court dismissed the case as to the named plaintiff. The court was also critical of the broad release that was proposed. This case was filed in connection with Hewlett-Packard’s $2.7 billion acquisition of Aruba Networks. The case is styled In Re Aruba Networks, Inc. Stockholder Litigation, Cons. C.A. No. 10765-VCL (Del. Ch. Oct. 9, 2015)(Transcript). My gratitude is owed to Kyle Wagner Compton, the editor of the unparalleled scholarly publication called The Chancery Daily,for alerting me to the transcript, as well as for the TCD’s exemplary coverage of all things relating to the Court of Chancery.

The Aruba decision has already been explained in such extensive detail by Kevin LaCroix on his blog called The D&O Diary,that I encourage readers to review his treatment of the case at the foregoing link.

Stating his belief that the merger objection litigation dynamic represents a “systemic” problem that has resulted in a “misshapen legal system,” Delaware Chancery Court Vice Chancellor Travis Laster rejected the proposed disclosure-only settlement of litigation that had been filed objecting to Hewlett-Packard’s $2.7 billion acquisition of Aruba Networks. In an October 9, 2015 settlement hearing in the case, Laster cited the “inadequacy of the representation” of plaintiffs’ counsel for the shareholder class as the basis for his rejection of the settlement, as well as for the outright dismissal of the case. Liz Hoffman’s October 10, 2015 Wall Street Journal article about Laster’s ruling can be found here.

As I said at the time following Glasscock’s rulings in the Riverbed Technology case, it would only be a matter of time before a judge at the Delaware Court of Chancery rejected a settlement on the basis that the value the plaintiff shareholders’ received in a disclosure only settlement was insufficient to support the breadth of the release that the defendants received in exchange. That is exactly what happened in connection with the proposed settlement of the H-P/Aruba Networks merger objection lawsuit.

Apparently there was a very typical Laster moment in the ruling (should we start referring to Lasterisms?):

Laster also acknowledged in the hearing that because his concerns about these kinds of settlements are well known, that parties have started dismissing the merger objection cases pending in his court in order to enter settlements in other jurisdictions where perhaps there might not be as many questions asked. (He noted parenthetically that it was fine with him if the parties took these kinds of cases to other courts; he observed that “I actually don’t like dealing with junky things, and I would prefer to devote judicial resources to real litigation, not pseudo-litigation.”)

Comments

In a recent bench ruling, the Delaware Court of Chancery refused to approve a proposed class action settlement in which the benefit to the class was “disclosures only”, and the court dismissed the case as to the named plaintiff. The court was also critical of the broad release that was proposed. This case was filed in connection with Hewlett-Packard’s $2.7 billion acquisition of Aruba Networks. The case is styled In Re Aruba Networks, Inc. Stockholder Litigation, Cons. C.A. No. 10765-VCL (Del. Ch. Oct. 9, 2015)(Transcript). My gratitude is owed to Kyle Wagner Compton, the editor of the unparalleled scholarly publication called The Chancery Daily,for alerting me to the transcript, as well as for the TCD’s exemplary coverage of all things relating to the Court of Chancery.

The Aruba decision has already been explained in such extensive detail by Kevin LaCroix on his blog called The D&O Diary,that I encourage readers to review his treatment of the case at the foregoing link.

Stating his belief that the merger objection litigation dynamic represents a “systemic” problem that has resulted in a “misshapen legal system,” Delaware Chancery Court Vice Chancellor Travis Laster rejected the proposed disclosure-only settlement of litigation that had been filed objecting to Hewlett-Packard’s $2.7 billion acquisition of Aruba Networks. In an October 9, 2015 settlement hearing in the case, Laster cited the “inadequacy of the representation” of plaintiffs’ counsel for the shareholder class as the basis for his rejection of the settlement, as well as for the outright dismissal of the case. Liz Hoffman’s October 10, 2015 Wall Street Journal article about Laster’s ruling can be found here.

As I said at the time following Glasscock’s rulings in the Riverbed Technology case, it would only be a matter of time before a judge at the Delaware Court of Chancery rejected a settlement on the basis that the value the plaintiff shareholders’ received in a disclosure only settlement was insufficient to support the breadth of the release that the defendants received in exchange. That is exactly what happened in connection with the proposed settlement of the H-P/Aruba Networks merger objection lawsuit.

Apparently there was a very typical Laster moment in the ruling (should we start referring to Lasterisms?):

Laster also acknowledged in the hearing that because his concerns about these kinds of settlements are well known, that parties have started dismissing the merger objection cases pending in his court in order to enter settlements in other jurisdictions where perhaps there might not be as many questions asked. (He noted parenthetically that it was fine with him if the parties took these kinds of cases to other courts; he observed that “I actually don’t like dealing with junky things, and I would prefer to devote judicial resources to real litigation, not pseudo-litigation.”)